Deficit forecast gloomy for years

For the fourth year in a row, Washington faces a $1 trillion-plus deficit and just servicing the nation’s debt will soon cost as much as paying for Medicaid, the federal-state health care program for the poor and disabled.

Those were two grim predictions in a 147-page report from the Congressional Budget Office, which Tuesday stepped into the 2012 campaign like some stern Aunt Cassandra — coming down from the attic to lecture the protagonists: “It’s not just the economy stupid, it’s also the debt.”

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Indeed the $1.079 trillion deficit now projected for the 2012 fiscal year ending Sept. 30 is wider than what the added CBO had predicted in August, and the picture won’t substantially improve unless Congress comes to grip with changes needed in tax and spending policy.

“The CBO’s latest alarm bell couldn’t be more ominous,” said House Budget Committee Chairman Paul Ryan (R-Wis.). “For years, politicians from both political parties have failed to be honest with the American people about the size and scope of the debt threat. The CBO’s report today confirms that it is past time for serious leaders to put aside politics and start forging solutions.”

To punch home its message, CBO outlines an especially grim scenario in which lawmakers not only extend all the current Bush-era tax cuts at the end of this year but also pull the plug on the $1.2 trillion in automatic cuts set in motion by the Budget Control Act last summer.

In this scenario — which can’t be ruled out politically — deficits would stubbornly hover just under $1 trillion through 2017 adding another $4.7 trillion to the debt over five years.

Under the more prudent — many say unrealistic — scenario of ending all the tax breaks and implementing spending cuts, the cumulative deficits would be $1.72 trillion or $3 trillion less from 2013 to 2017. And it’s that $3 trillion difference that essentially defines the battleground after the November elections if Washington again dithers through this year as it did much of 2011.

As the clock ticks, many costs are already baked into the cake.

For example, even under the more prudent path outlined by CBO, net interest costs will grow dramatically to where they reach $624 billion by 2022 — 2.5 percent of GDP compared with 1.4 percent today.

To put this in some perspective, servicing the debt by 2017 will consume almost as many dollars as paying for Washington’s Medicaid costs — even allowing for the greater health care spending under President Barack Obama’s reforms. And before the end of the decade, debt costs will surpass Medicaid and begin to approach total federal outlays for all nondefense discretionary appropriations.

The same sort of dynamic can be seen in CBO’s predictions for Medicare’s own inexorable growth.

With baby boomers retiring, the caseload for the health care program for the elderly will grow annually at a 3 percent rate over the next decade. But CBO is assuming the growth in costs per patient from 2012 to 2022 will average close to 1 percent above inflation — far less than the 5 percent experienced from 1985 to 2007 and suggesting that it won’t be a simple matter to cut benefits further.

A much smaller illustration — but one that could still be important to writing a farm bill this year — is the rising cost of crop insurance subsidies because of CBO’s predictions of continued high commodity prices. The report indicates an uptick of about $1 billion annually in mandatory spending for agriculture, and much of this appears driven by higher subsidies to support premium payments to insure higher-priced crops.